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The chief executive of online insurance exchange MarketScout said the decline in insurance prices has halted because rates have become inadequate to cover losses and expenses.
But according to Richard Kerr, chief executive officer of Dallas-based MarketScout, the expected increases that should follow may not be seen for months.
A chart released by Dallas-based MarketScout illustrating rate adequacy, shows soft market conditions have pushed property-casualty rates down 7 percent below adequate levels in 2008.
A $100 premium rate in 2001, adjusted for inflation, would stand at about $122 in 2008. However, that base $100 property-casualty rate in 2001, when compared to MarketScout’s barometer rate adjustments, rose to a high of $163 in 2004 and dropped to $113 in 2008, $9 below adequate rate adjusted for inflation.
According MarketScout’s analysis, current rates translate into a 13 percent increase since 2001, while inflation costs, measured by the consumer price index, have grown 22 percent.
MarketScout noted that in addition to inflation, there are dozens of actuarial factors to be considered that go into adequate premiums, suggesting the analysis gives only a rough estimate of the degree of rate inadequacy.
“At the end of every year we calculate the rate adequacy of the property and casualty industry,” said Mr. Kerr, “According to our calculations, the property and casualty rate index fell below ‘rate adequacy’ in the fourth quarter of 2008.
“Therefore, we believe this signifies the beginning of the end of the current soft market. It may take as much as a year for rates to actually start increasing but the soft market trend has turned.”
Taking a monthly comparison, MarketScout’s December barometer remained unchanged from November indicating overall insurance rates showed an average decrease of 9 percent.
By account size, small account rates (up to $25,000 premium), on a month to month basis, remained down 8 percent. Medium size accounts rates ($25,001-$250,000 premium) were down 9 percent compared to down 8 percent in November.
Rates for large accounts ($250,000-$1 million premium) were down 9 percent in December, compared to down 10 percent in November. Jumbo accounts (over $1 million in premium) were unchanged from November to December, down 10 percent.
Examining coverage classes, there were no dramatic developments, with nine of 14 classes of business exhibiting a change of 1 percent, but all classes remained down in December, ranging from 10 percent down (commercial property and general liability) to 5 percent (surety).
By industry class, there again were no significant changes, with rates down from 9 to 5 percent in the seven categories.
The complete MarketScout barometer report is available at www.marketscout.com.